Daily Rate Update: May 29th-June 1st

Strong job growth continued in May as the U.S. economic expansion continues its winning ways. The Bureau of Labor Statistics reports that Non-Farm Payrolls rose 223,000 in May, above the 190,000 expected and up from 159,000 in April. For the past three months, job gains averaged 179,000. April and March were revised for an increased total of 15,000. The Unemployment Rate for May fell to 3.8%, the lowest since April 2000.

May Average Hourly Earnings increased 0.3%, in line with estimates and up from 0.1 percent in April; year-over-year was reported at 2.7%, up from 2.6% in April. Total unemployment, or the U6 number, fell to 7.6% in May from 7.8% in April. The Labor Force Participation Rate was at 62.7% for May from 62.8 percent the previous month. Overall, the Jobs Report was strong and shows a tightening labor market.

Inflation pressures were somewhat subdued in May and will be closely dissected by the members of the Federal Reserve. The year-over-year Core Personal Consumption Expenditure (PCE) came in at 1.8% in April while March was revised lower to 1.8% from 1.9%. Month-over-month Core PCE came in at 0.2% vs. 0.1% expected. These are soft numbers and the recent strength of the U.S. dollar may weigh on future readings. The Core PCE is the Fed’s favorite inflation gauge and in the absence of a year-over-year rate going and staying above the Fed’s target of 2.00% – it’s hard to see the Fed hike more aggressively.

Some good news on the mortgage interest rate front: After rising for most of 2018 and hitting seven-year highs lately, rates declined in this week. Freddie Mac reports that the 30-year fixed-rate mortgage fell 10 basis points to 4.56% with an average 0.40 in points and fees. Freddie Mac says average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

Signed contracts to purchase a home declined in April from March due in part to the dwindling inventories of homes for sale on the markets. The National Association of REALTORS® reports that Pending Home Sales declined 1.3% from March to April, the third-lowest level over the past year. Lawrence Yun, NAR chief economist, says the housing market this spring is hindered because of the severe housing shortages in much of the country.

The first of two key labor market reports was released this morning showing that employers in the private sector added fewer workers than expected, but still at solid levels. Payroll processor ADP reported on Wednesday that there were 178,000 new workers added in May, just below the 183,000 expected while April was revised lower to 163,000 from 204,000. The pool of people who can’t find jobs could be dwindling as the labor market tightens, making it tougher to find new workers.

Economic growth was steady in the first quarter of this year though down from what was reported in the fourth quarter of 2017. The Bureau of Economic Analysis reports that the second reading on first quarter Gross Domestic Product (GDP) rose 2.2%, just below the initial reading of 2.3% and down from 2.9% registered in the final quarter of 2017. Lower consumer spending along with downward revisions to inventories led GDP lower.

The Mortgage Bankers Association (MBA) reports that mortgage rates edged lower in the latest week after moving higher for much of 2018. The 30-year fixed-rate mortgage fell to 4.84% from 4.86% in the latest week with points decreasing to 0.47 from 0.52. Within the report it showed that the MBAs Market Composite Index, a measure of total mortgage loan application volume, fell 2.9%. In addition, the refinance index declined 5% while the purchase index fell 2%.

Home prices continued to edge higher in March due in a large part to low inventories of homes for sale on the market. The S&P Case-Shiller 20-City Home Price Index rose 6.8% from March 2017 to March 2018, matching the February gain. David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, said, “Months-supply, which combines inventory levels and sales, is currently at 3.8 months, lower than the levels of the 1990s, before the housing boom and bust. Until inventories increase faster than sales, or the economy slows significantly, home prices are likely to continue rising.”

Consumers assessments of the current conditions regarding the U.S. economy is hovering near a 17-year high with a focus on better business conditions. The May Consumer Confidence Index came in at 128.0 in May, just above the 127.5 expected. The Conference Board said that overall, confidence levels remain at historically strong levels and should continue to support solid consumer spending in the near-term, which would support solid economic growth.

U.S. Stocks are lower to begin the holiday shortened week as political turmoil in Italy and Spain weigh on the equity markets. In addition, the on again off again summit between the U.S. and North Korea leads to uncertainty and the Stocks markets hate uncertainty. The closely watched Dow Industrial Average is down 400 points today. However, the average is up nearly 30% since the presidential election in late 2016.